Chapter 13 Bankruptcy

Chapter 13 is a type of bankruptcy that involves a financial reorganization plan. The Plan must be 36 to 60 months long.

You may need to file Chapter 13 instead of Chapter 7 if your income is too high above the average for your household size. If you have valuable assets that you want to keep, you may lose those assets if your file Chapter 7, since the Chapter 7 Trustee will want to sell – or liquidate – valuable assets in order to use the proceeds of sale to pay creditors. Filing Chapter 13 lets you keep those assets if you can propose a reorganization plan to pay your creditors.

Any individual, even if self-employed or operating an unincorporated business is eligible for chapter 13 relief. However, you are not eligible for relief under Chapter 13 if the amount you owe for unsecured debts exceeds $383,175, or if the amount you owe for secured debts [debts secured by collateral, such as car loans and home loans] exceeds $1,149,525.

In a Chapter 13 Plan, different types of debts are classified in an order of priority. Certain debts, such as recent income tax debts, are classified as priority debts that have to be paid in full during the term of the Chapter 13 Plan.

Secured debts [a debt secured by collateral], such as a car loan, also have to be paid during the term of the Chapter 13 Plan.

If a secured debt is a long-term debt, such as a home loan, then you may pay the monthly payments directly to the lender. However, if you have fallen behind on the loan payments, that you can use a Chapter 13 Plan to catch up on the payments you missed.

General, unsecured, non-priority debts, such as credit cards, medical bills and personal loans, do not necessarily have to be paid in full during a Chapter 13 Plan, depending on your circumstances.

Here is a general overview of how the Chapter 13 process works. This general overview should not be taken as legal advice to you, since simply reading a website does not make you a client of this law office.

Before you can file bankruptcy, you must complete a course on consumer credit counseling.

A bankruptcy petition must be prepared, and the petition must disclose your assets, income, debts, expenses, and your financial affairs. You must sign the petition under the penalty of perjury. If you get caught making false statements, such as not disclosing an asset, then you may be prosecuted for committing the crime of bankruptcy fraud.

When the petition is filed, the Court issues an Order known as the automatic stay, which stops – or stays – the collection efforts of your creditors. Even if a creditor has obtained a judgment against you, and is trying to garnish your wages or take money right out of your bank account with a levy, the automatic stay still stops your creditors.

Your first monthly payment to the Chapter 13 Trustee is due 30 days after the filing of the Chapter 13 case, even if your Plan has not yet been confirmed by the Court.

Filing a Chapter 13 petition also creates a bankruptcy estate, which is administered the Chapter 13 Trustee. All assets [with some exceptions, such as a 401k plan], become the assets of the bankruptcy estate. You can apply exemption laws to claim your assets as exempt from the bankruptcy estate. Although a Chapter 13 Trustee does not liquidate your non-exempt assets, which is what a Chapter 7 Trustee would do, the Chapter 13 Trustee does look at the value of your non-exempt assets. The point is that the Chapter 13 Trustee analyzes what your creditors would have been paid if you had filed Chapter 7 and your non-exempt assets were liquidated. So if you want the protection of the Chapter 13 automatic stay, you still need to pay back to your general, unsecured, non-priority creditors what they would receive in a Chapter 7 liquidation of assets.

About 30 to 40 days after the Chapter 13 petition is filed, you must attend the Meeting of Creditors. Your attendance is mandatory. You must also bring a current, government-issued photo ID such as your driver’s license; as well as proof of your Social Security Number, such as your social security card or a W-2 statement. At the Meeting of Creditors, the Chapter 13 Trustee will question you about your assets, income, debts, and financial affairs.

After the Meeting of Creditors, there will be a hearing on the confirmation of the Chapter 13 Plan.

Before you complete the Chapter 13 Plan, you must complete an educational program on financial management.

Once you complete the Chapter 13 Plan, you will receive a Court Order known as the Discharge of Debtor, which relieves you of your personal liability for your dischargeable debts.